Acort Industries owns assets that will have a(n) 60% probability of having a market value of...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Acort Industries owns assets that will have a(n) 60% probability of having a market value of $46 million in one year. There is a 40% chance that the assets will be worth only $16 million. The current risk-free rate is 5%, and Acort's assets have a cost of capital of 10%. a. If Acort is unlevered, what is the current market value of its equity? b. Suppose instead that Acort has debt with a face value of $11 million due in one year. According to MM, what is the value of Acort's equity in this case? c. What is the expected return of Acort's equity without leverage? What is the expected return of Acort's equity with leverage? d. What is the lowest possible realized return of Acort's equity with and without leverage? a. If Acort is unlevered, what is the current market value of its equity? The current market value of the unlevered equity is $ million. (Round to three decimal places.) Acort Industries owns assets that will have a(n) 60% probability of having a market value of $46 million in one year. There is a 40% chance that the assets will be worth only $16 million. The current risk-free rate is 5%, and Acort's assets have a cost of capital of 10%. a. If Acort is unlevered, what is the current market value of its equity? b. Suppose instead that Acort has debt with a face value of $11 million due in one year. According to MM, what is the value of Acort's equity in this case? c. What is the expected return of Acort's equity without leverage? What is the expected return of Acort's equity with leverage? d. What is the lowest possible realized return of Acort's equity with and without leverage? a. If Acort is unlevered, what is the current market value of its equity? The current market value of the unlevered equity is $ million. (Round to three decimal places.)
Expert Answer:
Answer rating: 100% (QA)
SOLUTION a If Acort is unlevered the current market value of its equity can be calculated as the expected market value of its assets multiplied by the ... View the full answer
Related Book For
Posted Date:
Students also viewed these finance questions
-
Acort Industries owns assets that will have an 80% probability of having a market value of $50 million in one year. There is a 20% chance that the assets will be worth only $20 million. The current...
-
Vista Oil & Gas Industries owns assets that will have a(n)80% probability of having a market value of $100 million in one year. There is a 20% chance that the assets will be worth only $70...
-
Read the case study "Southwest Airlines," found in Part 2 of your textbook. Review the "Guide to Case Analysis" found on pp. CA1 - CA11 of your textbook. (This guide follows the last case in the...
-
Let n=102 +r, where , re N, 0r9. A number a is chosen at random from the set {1, 2, 3, ..., n} and let pn denote the probability that (a 1) is divisible by 10. 70. If r = 0, then npn equals (a) 22...
-
A machine component is subjected to the forces shown, each of which is parallel to one of the coordinate axes. Replace these forces with an equivalent force-couple system at A. imi 240N I50 N 125 30...
-
What is the most important or basic assumption made by all the matrix approaches in this chapter? What do we do if this assumption is not valid?
-
How is the activity rate determined?
-
Gilbert, Inc., which uses a process costing system, makes a chemical used as a food preservative. The manufacturing process involves Departments A and B. the company had the following total costs and...
-
Complete the conversation using the correct present tense form of the most appropriate verb from the word bank to fill in each blank. son | conozco | tenemos | s | gusta | estoy Yolanda: Ay! Me enter...
-
What should a company's next step be after getting materials translated into a foreign language by a translation company?
-
A company has a service department which allocates its costs to two operating departments A and M. Variable costs of the service department are based on the number of cases produced and fixed costs...
-
Question: A) Denton wants to purchase a new truck. He was able to get a loan of $35,000 from his bank at 5.5% APR for 7 years. What will his monthly payment be? B )If Denton makes all of his...
-
- What roles do email marketing play in the Digital marketing strategy? - How do you maximize social media in a digital marketing strategy? - How does a digital marketing strategy create a compelling...
-
Today, Terry purchased an ordinary annuity for $170,000 that provides monthly payments for 20 years. If the annual interest on the annuity is 3.5%, and the rate is compounded monthly, what is the...
-
Ace Construction which has a calendar year end, has entered into a non-cancellable fixed priced contract of $2,800,000 beginning August 1, 2020 to build a road for a municipality. It has been...
-
Carbata Company manufactures low-cost, basic tool kits in bulk. Below is the latest information for last month's production. Inventory on September 1 96 Complete Units Started Costs Added in...
-
In order to get an idea on current buying trends, a real estate agent collects data on 10 recent house sales in the area. Specifically, she notes the number of bedrooms in each house as follows: a....
-
You are thinking about buying a piece of art that costs $50,000. The art dealer is proposing the following deal: He will lend you the money, and you will repay the loan by making the same payment...
-
Assuming that you own only the Series A preferred stock in Problem 4 (and that each share of all series of preferred stock is convertible into one share of common stock), what percentage of the firm...
-
You currently have a one-year-old loan outstanding on your car. You make monthly payments of $300. You have just made a payment. The loan has four years to go (i.e., it had an original term of five...
-
Which of the following is not a cash equivalent? a. Short-term U.S. Treasury bill b. Short-term certificate of deposit c. Money-market account d. IBM common stock
-
Which of the following methods will disclose the cash received from customers in the statement of cash flows? a. Indirect method b. Reconciliation method c. Direct method d. Both direct and indirect...
-
Which of the following expenses are not added back to net income when using the indirect method to prepare a statement of cash flows? a. Amortization expense b. Depletion expense c. Interest expense...
Study smarter with the SolutionInn App